Nike’s recent decision to feature Colin Kaepernick in its advertising campaign has yielded interesting academic commentary on the application of the business judgment rule, which is relevant to health care system boards.
The Kaepernick-based ad campaign decision was subjected to substantial public controversy following its release, and the company’s stock price suffered some initial decline as a result. This prompted questions regarding the board’s role in the decision and the extent to which any such involvement merited business judgment rule protection. According to a leading business law professor, any such board involvement should be viewed as entirely consistent with the rule.
The professor based his observation on the assumption that the board was probably made aware of the Kaepernick decision in advance, even though the board likely delegates major advertising decisions to senior executives. In such a situation, the delegation itself is likely justifiable under the business judgment rule, given the historical success and sophistication of Nike’s advertising program. Corporate law makes it very clear that directors are entitled to rely on the honesty and integrity of their executives and other managers, unless they have information to the contrary. Here, the directors were clearly comfortable with management’s role.
Many significant corporate decisions (e.g., marketing or advertising campaigns) are inherently subject to risk—especially decisions that may be progressive or likely to invite controversy that could harm corporate reputation. Nevertheless, the board’s decision to delegate that decision-making authority to senior management can be structured to satisfy the business judgment rule.
The discussion regarding the Nike campaign is a topical example that can remind the health system board not only about the valuable scope of the business judgment rule, but also of the need to ensure that appropriate processes are in place when major decisions are being made (including a decision to delegate), to help support a claim to such protection.